When Corruption Begets Corruption: Welfare Analysis and the Role of Bureaucratic Wages Under Multiple Equilibria

Abstract

The paper presents some empirical puzzles in the relationship between bureaucratic wages and corruption levels, and attempts to reconcile them within a general equilibrium framework that leads to multiple equilibria in the incidence of corruption. In the presence of such multiple equilibria, the relationship between bureaucratic wages and corruption is no longer monotonic, and much more complex than detailed by previous theoretical and empirical research. Further, a welfare analysis shows that social welfare is decreasing in the incidence of corruption, across such equilibria.